Editorial: Vital we remember lessons of 1987 crash

Stock Market Crash 1987 : Auckland chalkie Claire Ruckman feels the pressure during the morning. Photo / NZherald

Editorial

The past is a foreign country, wrote novelist L. P. Hartley.

Thats been all too clear looking back at New Zealand in 1987, as the Herald has this week to mark the 30th anniversary of the stock market crash.

Its not just fashion, music and hairstyles that emphasise the distance between life now and then.

New Zealand had an economy with inflation running at 18 per cent and mortgage rates above 20 per cent. It was a world away from the conditions of 2017.

New Zealanders, freshly freed from the shackles of Robert Muldoons controlled economy, were swept up in a belief that free market capitalism was a one-way bet. We did not understand risk.

People swapped share tips with their taxi drivers, they talked investment over wine and cheese at neighbourhood share clubs. They piled directly into the market without the benefit of professional advice or the kind of regulation and technology that enables information to be shared quickly and fairly with the public.

When it all came crashing down on October 20, 1987, New Zealands economic revolution stalled. Banks stopped lending, companies went bankrupt and unemployment soared.

Real lives were ruined - homes lost and marriages ended.

A generation of Kiwis turned away from the sharemarket, leaving some of our best companies short of capital. Many were snapped up by foreign bargain hunters in the years that followed.

It is vital that we remember the era for more than just the nostalgia. We remember the wars of the past in the sombre hope that we will not repeat them.

So too with economic and financial stories. We need to look again at the behaviour that tripped us up.

Some things are not so different and despite what the hapless protagonist in the Split Enz song tries to tell himself - history often repeats.

World stock markets are soaring again. The NZX-50 has risen nearly 10 per cent in just three months. Its now up more than 230 per cent since a low after the global financial crisis in 2009. Those that have stuck with it have been rewarded.

We are experiencing one of the longest bull market runs in history. Its important that we dont take it for granted. The local stockmarket is now a far safer investment environment, with better companies under closer scrutiny. But as KiwiSaver accounts grow so to do the stakes for New Zealanders.

We need to also look at other parts of our economy for the kind of fervour and irrational exuberance that flourished in 1987. Not least the property market, now wobbling, in which many Kiwis remain highly leveraged and highly exposed.

Pessimism is no recipe for creating wealth, but we need to be confident we have the structures in place to get us through the next financial shock without the kind of damage that was done in 1987.